Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial
Obligation or an Obligation under an Off-Balance Sheet Arrangement.
On December 20, 2022, Soluna MC Borrowing 2021-1 LLC ("Borrower"), an indirect
wholly owned subsidiary of Soluna Holdings, Inc. (the "Company"), received a
Notice of Acceleration and Repossession (the "NYDIG Notice") from NYDIG ABL LLC
("NYDIG") with respect to the Master Equipment Finance Agreement, dated as of
December 30, 2021 (the "MEFA"), by and between Borrower and NYDIG. The
obligations of Borrower under the MEFA and reflected in the NYDIG Notice are
ring-fenced to Borrower and its direct parent company, Soluna MC LLC. The
Company is not a party to any guaranty, collateral agreement or other support
agreement with or for the benefit of NYDIG. Borrower has entered into a dialogue
with NYDIG to resolve the matters set forth in the NYDIG Notice.
The NYDIG Notice states that (a) Borrower failed to observe or perform certain
covenants, conditions or agreements contained in the MEFA and such failure
continued unremedied for a period of ten days after Borrower's knowledge of such
breach, which resulted in an event of default under the MEFA, and (b) Borrower
defaulted under the guaranty, collateral agreement, or other support agreement,
which resulted in an event of default under the MEFA. In addition, the NYDIG
Notice states that Borrower failed to pay certain payments of principal and
interest under the MEFA when due, which failure also constituted an event of
default under the MEFA. As a result of the foregoing events of default, and
pursuant to the MEFA, NYDIG (x) declared the principal amount of all loans due
and owing under the MEFA and all accompanying Loan Documents (as defined in the
MEFA) to be due and immediately payable, (y) imposed a default rate of interest
on any outstanding principal amount of each loan (together with all then unpaid
interest accruing thereon) and all other obligations under the MEFA and the Loan
Documents, and (z) demanded the return of all equipment subject to the MEFA and
the Loan Documents. The approximate aggregate principal and interest outstanding
under the MEFA and the Loan Documents as of December 20, 2022, are $11,651,333.
Based on a recent analysis, Borrower believes that the market value of the
collateral is substantially less than that amount.
The events of default stated in the Notice also constitute a cross-default under
the terms of secured convertible notes (the "Notes") issued to certain investors
(the "Noteholders") by the Company pursuant to a Securities Purchase Agreement
dated as of October 20, 2021. The Noteholders have not exercised any remedies
with respect to this event of default or the defaults and events of default
described immediately below. The Company is engaged in active discussions with
the Noteholders to finance the energization of phases 1(a) and 1(b) of the
development site in Texas commonly referred to as Project Dorothy.
In addition to such cross-default, the failure of the Company pursuant to the
Addendum dated as of July 19, 2022, to escrow an aggregate amount of $950,000
for the benefit of the Noteholders by December 21, 2022, constitutes an event of
default under the Notes. Further, the Company's receipt of the Nasdaq Notice (as
defined below) has commenced a 20-day period for the Company to cure its
noncompliance with the conditions for continued quotation of the Common Stock
(as defined below) on the Nasdaq (as defined below) that, if not so cured during
such period, will result in an event of default under the Notes. The approximate
amount of principal outstanding under the Notes as of December 20, 2022 is
$13,005,022. If an event of default is still continuing five days after the
occurrence thereof, then the Notes will begin accruing interest at the rate of
18% per annum on the outstanding principal amount.
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or
Standard; Transfer of Listing.
On December 21, 2022, the Company received a letter (the "Nasdaq Notice") from
the Listing Qualifications Staff of The NASDAQ Stock Market LLC ("Nasdaq")
indicating that, based upon the closing bid price of the Company's common stock
(the "Common Stock") for the last 30 consecutive business days, the Common Stock
no longer meets the requirement to maintain a minimum closing bid price of $1.00
per share, as set forth in Nasdaq Listing Rule 5550(a)(2). The Notice has no
immediate effect on the listing of the Company's Common Stock on the Nasdaq
Capital Market.
In accordance with NASDAQ Listing Rule 5810(c)(3)(A), the Company has a grace
period of 180 calendar days, or until June 21, 2023, to regain compliance with
the minimum closing bid price requirement for continued listing. In order to
regain compliance, the minimum closing bid price per share of the Company's
Common Stock must be at least $1.00 for a minimum of ten consecutive business
days.
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